Market Update

General - Paringa - Sheffield

Good afternoon

markets are slightly stronger today, despite the renewed attacks on tanker in the Street of Hormuz, which are leading to stronger oil prices today. No big surprises from Import prices in the States.

There continues to be quite heavy speculation in junior rare earth stocks…heavy turnover, as investors are asking themselves, which compnay - if any - might be backed by “unprecetended” action of the US to ensure steady supply in the future - at the same time, as China seems to get more serious to clamp down on enviromental issues of rare earth mines in China.

Evolution is digesting yesterday´s selldown by Mr.Sawiris ( at 3,76 A$ ) surprisingly well.

Copper is slightly stronger ( strike at Chuquicamata in Chile, one of Coldelco´s large mines ) , following some earlier weakness…

Iron ore trading at 106 US$, as market observers expect another fall of iron stocks in China. It looks like Brazil shipments are still weak, and Australia cannot increase production…RIO might actually have difficulty in matching the guidance. So, stronger for longer?? Producing iron ore seems like a license to print money in the moment. Taking into account the large percentage of earnings of the majors from iron ore, this might be as good as it gets for them for some time to come.

Paringa - came out with a very detailed prsentation today, including financial forecasts. Production is not fully up and running as yet, but that was not expected, either. The company forecasts 800.000t production this calendar year, 2.2 millt in 2020, and 2.7.-2.8 millt in the years thereafter. The company is forecasting 16 mill US$ EBITDA in 2020, 28.6 mill US in 2021 and 32 Mill US in 2022 calendar years. - not bad for a company, which has net debt of approx 19 millUS$ and a market cap of 35 Mill US$ ( at 0,11Act/share ). I would like to see anotehr Quarter of halfway strong production - but most probably, this is a cheap coal stock! This is no high tech stock, and they seem to have a more-than-ready market for their coal - 100% of 2019 production has been sold, and 95% of 2020 production. PNL report, that all of their existing customers would like more coal, and at rising prices, as Illionois coal production generally has been falling, with no new mines in sight. Overall - I think the ship is much steadier than it was a few month ago. The refinancing has been a major positive for PNL, allowing them to fully concentrate on a smooth ramp-up.

Sheffield - I have much reason to believe, that nothing is wrong here fundamentally! Let´s look back a little into last year. The company probably has been overpromoted with the view, that a takeover was kind of imminent - the project just being too good and too sexy - in a market, which will be in structural deficit soon . Anyway - as always, this did not happen - and the company started to see some frustrated selling. Then, we came into this horrible last Quarter of 2018, when everything tumbled - only to find , that the company quite urgently needed some money. 16 Mill A$ were raised at ( what we thought then was an overly low price ) 65ct - Blackrock increased their holding in this placement by 11 mill shares, to nearly 10% of the company. What nobody thought was, that little Sheffield just kept on falling and falling…to only 30ct ( a new low ) as at today. In mid-January, SFX announced UBS as their corporate banker to look for a JV-partner, and a sell-down of the project to someone to assist with the equity to develope the Thunderbird Meneral Sands project. The formalities like getting the data room ready, signing confidentialiy agreements and the like then took about 2 month ( always bad to have lawyers involved ! ) and the process finally got underway in April. Simultaneously, the company together with it´s engineering consultant worked on a more capital-light start-up of THunderbird, some details of which were announced the other day. This version will skip the production of Ilmenite, save a lot of capex therefor, and will concentrate on producing as much zircon as possible in the early years. Given the excellent prices of zircon currently being achieved, and the ven better outlook for it, I think cash flow as well as NPV could be improved, while having lower equity requirements. We will have results of this study finalized in mid/late July.

I think the market is of the opinion, that this new study is an indication of there beeing no potential equity partners in this project. This assumption is definitely wrong - indeed , the above studies have been running in parralel to the sale process run by UBS.

I believe, that Thunderbird is an excellent project - potentially even better than it looked like late last year. If you are a holder, keep holding…if you are not, you should buy some…Current prices can only be explained by two larger holdings being sold ( I believe, that this is largely done now ) and by tax-loss selling for the end of the tax year on the 30th of June…Please do not panic….

Have a nice evening


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